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Nigeria Strategy Report H2 2017 Excerpts - Nigeria GDP: Recovery signal speaks

• ​We continue with our series of excerpts from our core strategy document – The Nigeria Strategy Report, but direct our focus towards a review of the performance of Gross Domestic Product over 3M 2017 and outline our view on the economic landscape for the rest of the year.
  

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• ​Extending the trend from 2016, when output shrank 1.5% relative to 2015—encapsulating four quarters of YoY contraction, real GDP contracted 0.5% YoY in the first quarter of 2017. However, this reading was not only an improvement from the -1.3% YoY contraction registered during the preceding quarter but was also the smallest contraction since the trend began. The improvement appears to buttress our view, premised on PMI-strengthening, and as expressed in our H1 17 strategy report, that Nigeria might be coming out of recession in Q2 17. Drilling to the underpins of the recovery, whilst oil GDP recorded a narrower contraction, the lowest since Q2 16, an outright recovery in non-oil GDP proved the boost. The growth in non-oil was driven by Agriculture, Manufacturing, and Services.
  

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• ​For the rest of the year, our views on oil production and sustained momentum of non-oil sector remains central in clarifying our outlook. For oil GDP, the recent opening of the Trans-Forcados pipeline, which is expected to add circa 200kbpd to current production raises the prospect of an average oil production of 1.9mbpd over H2 17. Critically, sustained improved engagement with host oil communities to which we attributed the sharp reduction in pipeline vandalism should help production gains from lifting of force majeure crystallize to tangible output increase. However, owing to the shortfall in Q1 17, potential turnaround maintenance on subsisting terminals, as well as risk of security concerns in the Niger Delta region, we adopt a more cautious estimate of 1.9mbpd over 2017 from 2016 average of 1.81mbpd.
  

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• ​Examining likely developments on the non-oil side, in light of FG’s thrust of boosting non-oil sectors, with agriculture on the front burner, we think the ongoing support would be sustained. Elsewhere, despite the combined effect of high interest rate environment and constrained consumer income which should remain a drag on output, we expect improved FX sales and increased power supply to sustain the growth in manufacturing activities over the rest of the year. Additionally, higher YoY mobile subscription base should sustain the positive trend in the telecommunications segment and by extension the ICT sub-sector. Consequently, given the expected increase in oil production and sustained growth in agriculture and manufacturing, we now expect the economy to rise 0.8% YoY in 2017 with the first quarterly YoY growth expected in Q2 17.
  

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